‘Partnerships are vital to navigating investment regulation changes’ – investment experts agree
Mike Adsetts, Deputy Chief Investment Officer at Momentum Investments
The change to Regulation 28 and the further relaxation of exchange control presents both opportunities and challenges to the investment industry. However, the key to navigating this changing landscape lies in continuing to capacitate teams complemented by steadfast and committed partnerships.
This was the consensus shared among panellists during a recently held Momentum-hosted webinar, which unpacked the effect of recent exchange control relaxations and the promulgation of Regulation 28 changes.
Regulation 28 forms part of the South African Pension Funds Act 24 of 1956. This act aims to encourage the diversification of investment portfolios and ensure investments are conducted in a practical manner to avoid high-risk investments.
Earlier this year, the Reserve Bank also announced further exchange control relaxation. This means investment portfolios are allowed increased offshore exposure. “This change in exchange controls is fundamental in the industry and it has great implications on us from a solution design perspective. From an industry perspective, it places a spotlight on the ability of the localised investment managers to manage international portfolios properly,” explained Mike Adsetts, Deputy Chief Investment Officer at Momentum Investment.
The new changes allow for asset managers to invest a bigger proportion of retirement funds offshore. Investment portfolios can now become more diverse, increasing offshore requirements from 30% International and 10% African to a single offshore limit of 45%.
“Additionally, given our outcomes-based investment solutions, we can’t see the offshore component as a separate piece of the puzzle and we have to design it much more closely and carefully, given the 45% might be sitting in that space,” added Adsetts.
Speaking to what these changes mean from a strategic allocation of investments perspective, Mohammed Sibda, Senior Multi-asset Portfolio Manager at Momentum Investments said, “Our model suggests that higher global allocation increases the probability of the achieving the respective outcomes that we’ve set for our portfolios.”
Adsetts argued that this increased diversification may provide more exposure to more market sectors, but it also poses currency volatility risk. “The potential increase in more volatile returns may stem from increased offshore exposure, but this should be offset over the longer term by the increased diversification and investment opportunity set with more exposure to market sectors not available in South Africa including ESG-related portfolios.”
The panellists all agreed that navigating these developments could be difficult for local portfolio managers, so integrating the international component to investment portfolios is vital.
To complement Momentum’s global team, the partnership Momentum has with Robeco, an international asset management company, was identified as a very powerful weapon and tool when it comes to Momentum Investment’s capability to overcome the challenges presented by these new developments.
“Robeco provides tailored solutions that could meet our specific outcome investment needs, and this is an important part of the opportunity that exchange control relaxation offers us,” noted Adsetts.
Finally, education on global asset classes and transparency with other parties and clients was hailed as important when it comes to these changes. “When we allocate investments globally, we, as portfolio managers need to be aware of what the terms are so we can communicate that to our clients,” said Sibda.
He noted that education will also be of vital importance when allocating investments globally, but once more experts enter the space there will be more information available to educate portfolio managers. “We need to educate clients as to why we are allocating these investments abroad and what the impact will be,” said Sibda.
All-in-all, the verdict from the Momentum Investments panel was that of optimism. Through the right tools, partnerships, and education – the journey to investment success is now made easier through increased diversification and investment opportunity set with more exposure to market sectors not available in South Africa.
ENDS
